DAC confirms transfer pricing also applies to Estonian CIT

In a recent blog entry we wrote that according to the position of the tax authorities, the choice of a simplified form of taxation (the lump sum on the income of companies called Estonian CIT) does not exclude the application of transfer pricing regulations. At the same time, we highlighted doubts and practical problems that may be faced when applying the transfer pricing regulations to the Estonian CIT regime.

Estonian CIT is not a transfer pricing ‘simplification’

In individual interpretations issued in 2022, tax authorities stated the choice of Estonian CIT as a form of taxation entails the exclusion of certain income tax act regulations. At the same time, it was emphasized that the exclusion does not apply to transfer pricing regulations as no actual provision establishes grounds for such a statement.

This means that an Estonian CIT taxpayer may be subject to transfer pricing obligations.

One of the applicants disagreed with this position and lodged a complaint with the District Administrative Court against the individual interpretation received.

District Administrative Court confirms

In the judgment of 11 January 2023[1], the District Administrative Court in Poznan confirmed the position of the tax authority and dismissed the taxpayer’s complaint. The court stated that even if the taxpayer opted for the Estonian CIT as a form of taxation, it still had to comply with transfer pricing regulations.

In the justification, the Court (similarly to the tax authority) referred to the exclusion of certain income tax regulations in the case of Estonian CIT taxation. It stated the exclusion does not include transfer pricing regulations. At the same time, the DAC emphasized that if the lawmaker wanted to make such an exclusion, it would explicitly feature it in the regulations. To support its statement, the Court referred to the judgment of the Supreme Administrative Court of July 2022: although it concerned other tax matters, it also indicated that if the tax lawmaker wants to exclude certain general rules, it must do so explicitly.

The District Administrative Court also referred to the arguments from the applicant’s justification, but did not agree with it. According to the applicant, the exclusion of transfer pricing regulations for the Estonian CIT regime taxpayers may be supported by the fact that the lawmaker – when governing the principles of this form of taxation – referred only to selected provisions from Chapter 1a of the Act (Articles 11a and 11c). In the applicant’s opinion, such an approach confirms that other transfer pricing regulations do not apply. However, according to the Court, the fact that the lawmaker recognized the need to refer to specific provisions on transfer pricing in order to comply with the Estonian CIT regulations does not mean that the remaining provisions of Chapter 1a do not apply to taxpayers in this regime. The Court believes that this way the lawmaker simply referred taxpayers directly to this chapter.


The District Administrative Court in Poznan – dismissing the complaint against the individual interpretation and indicating the lack of exclusion of the application of transfer pricing regulations in the case of taxation with Estonian CIT – confirmed the current position of the Ministry of Finance and tax authorities. Thus, taxpayers in the lump sum on the income of companies regime may be also obliged to document transfer pricing.

Despite the uniform position of the authorities and the court in this matter, the practical aspects of fulfilling transfer pricing obligations by taxpayers subject to Estonian CIT remain unexplained: for instance, how to determine whether a company can apply the so-called exemptions for domestic entities (we covered it in one of our previous entries). Taking this into account and since this is the first year when Estonian CIT taxpayers will be fulfilling their tax obligations, we recommend to analyze the settlements in terms of transfer pricing obligations well in advance and with the support of specialists.

If you need our support, please contact us. We will continue to monitor the developments in the field of Estonian CIT and transfer pricing.

[1] I SA/Po 697/22 – the judgment of the District Administrative Court in Poznan

Witold Tomczak

Witold Tomczak

Senior Consultant, Transfer Pricing Practice

Tel.: (+48) 503 973 937